The Am Law Litigation Daily: January 9, 2009

Litigator of the Week
Kenneth Geller of Mayer Brown
Among
the myriad hot-button issues in American jurisprudence today, federal
preemption is at the top of the list. To its critics, it's a license
for companies to escape liability for misleading consumers. To its
defenders, it's the only sensible way to regulate businesses.

The Litigation Daily isn't taking sides in that debate. We just keep
score. And this week the pro-preemption crowd received a big win. On
Monday, Minneapolis federal district court judge Richard Kyle tossed out a large group of cases against Medtronic,
which faced dozens of product liability suits for its Sprint Fidelis
defibrillator, which it pulled from the market in October 2007. In
dismissing the cases, Judge Kyle cited the 2008 Supreme Court decision Riegel v. Medtronic, Inc.,
which barred "common-law claims challenging the safety or effectiveness
of a medical device marketed in a form that received pre-market
approval from the FDA."

Medtronic--and other medical device makers--can thank our Litigator of
the Week for the decision. Kenneth Geller of Mayer Brown served as
cocounsel with Gibson, Dunn & Crutcher's Theodore Olson in the
Riegel case, and then benefited from his own Supreme Court victory as
Medtronic's lead counsel in the Minnesota defibrillator cases.

Citing his client's wishes, Geller--who is Mayer Brown's vice-chairman
and a veteran Supreme Court litigator--declined to speak with us. But
here's what Medtronic had to say about Judge Kyle's ruling: "This
decision supports the principle that the U.S. Food and Drug
Administration is the appropriate body to determine the safety and
efficacy of innovative technologies."

Securities
Plaintiffs Lawyers Pounce on 'India's Enron'
In
today's global economy, it's ever more difficult to evade American
securities class action lawyers. Satyam Computer Services learned that
lesson Thursday, a day after its chairman and chief executive, B.
Ramalinga Raju, confessed in a resignation letter to Satyam's board of
directors that he'd engaged in a $1 billion accounting fraud. No sooner
had Satyam been dubbed "India's Enron" than two U.S. plaintiffs
firms--Florida's Vianale & Vianale, and Izard Nobel of
Connecticut--announced that they had filed securities class actions
against certain Satyam directors and officers on behalf of purchasers
of the company's American Depository Receipts, which are traded on the
New York Stock Exchange. Here's the press release from Vianale and the release from Izard.

More suits are sure to be on the way. On Thursday we talked to name
partner Sam Rudman of Coughlin Stoia Geller Rudman & Robbins, who
told us he's exploring the possibility of filing cases in the United States on
behalf of American investors who bought Satyam shares on exchanges in
India. Rudman conceded that Satyam could have subject-matter
jurisdiction defenses against such actions, but said he believes
plaintiffs can overcome those arguments. Rudman also told us to expect
more financial scandals to erupt in the developing world in 2009.

Barry Lee of Manatt Phelps & Phillips was part of the team that won
the largest verdict of 2008--a $606.6 million award against Boeing Co.
and a subsidiary in a contract case for ICO Global Communications
Holdings. Lee, who won Litigator of the Week honors
for his work on that case, told Bloomberg he was careful to take a
measured approach to damages, asking for $949 million in punitives,
which amounted to less than three times the $270.6 compensatory verdict
he'd won in the earlier phase of trial.

"It's always in my mind, not only on punitives, but on compensatory
damages," Lee said. "We want everything our client is entitled to, but
we don't overreach."

Some see smaller verdicts as the work of powerful corporate lobbyists.
"We're seeing the effects of a campaign that has been ongoing for the
last ten to 12 years of trying to eliminate punitive damages against
corporate interests," Robert Cunningham of Cunningham Bounds Yance
Crowder & Brown of Mobile told Bloomberg. "It appears to
have worked."

Bankruptcy / Securities
Kramer Levin Partner Makes Sense of Madoff Clawbacks
For
weeks, we've been hearing about how the investors who cashed out of
Bernard Madoff's investment funds before they collapsed could be sued
by their less-prescient fellow investors. We liked the name for these
contemplated actions--"clawbacks"--but we weren't quite sure how they'd
work. Now we get it, thanks to an excellent piece in The Deal by Kramer Levin Naftalis & Frankel bankruptcy partner Philip Bentley.

Bentley draws upon his experience representing redeemers in the Bayou
hedge fund bankruptcy to map out the likely progress of the case
against Madoff redeemers. According to Bentley, the Madoff investors
who got their money out are likely to be sued by the trustee of Bernard
Madoff Investments--Irving Picard of Baker Hostetler. Under the
bankruptcy code, Bentley explains, Picard has broad powers to recover
payments made to investors 90 days before the bankruptcy was declared.

But the recent redeemers, he says, aren't the only investors who should
expect to be targeted by Picard. "Many investors who redeemed as many
as six years before the Madoff bankruptcy will probably also be sued by
the trustee," Bentley writes. "Specifically, the trustee is likely to
assert fraudulent transfer claims against at least two groups of
investors. First, those who profited from their Madoff investments will
be asked to return their profits," he says. "Second, and most
controversial, investors who redeemed as long ago as December 2002 may
be asked to return their principal, as well as their profits."

Return their principal six years after they said goodbye to Bernie?
That seemed pretty harsh to us, but Bentley cites a New York bankruptcy
court's ruling in the Bayou case that said investors had to return
their principal and profits if it could be shown that they "should have
known" about the fraud when they made their redemptions.

Bentley, who represents Madoff redeemers, writes that it remains to be
seen whether the judge overseeing the Madoff bankruptcy will rule the
same way. But he has already explored a line of defense for Madoff
redeemers---that they shouldn't be expected to have known about a
scheme that no one else detected. "If no fraud was found by the
Securities and Exchange Commission despite its several investigations,
nor by the various sophisticated institutional investors that conducted
due diligence on their own," Bentley writes, "how can it be said that
anyone 'should have known' what was occurring?"

White-Collar
For Prosecutors, Finding Wall Street Bad Guys Isn't Easy
Back in November we wondered why we had not seen more indictments of Wall Street defendants,
especially given all the hype about U.S. attorneys adding resources to
their white-collar units. The always-insightful Roger Parloff of
Fortune magazine (an Am Law alum) asks the same question in a provocative Fortune cover story
this month. Parloff's conclusion: The issues aren't so neat and clear.
They often involve statements executives made about market conditions
that seem crazy in retrospect, but once upon a time could be defended.
"The process that is due requires distinguishing foolish mistakes from
lies and fraud--a line that can get surprisingly fine," writes Parloff.
"To the chagrin of John Q. Public, there will be serious defenses in
most of these cases."

One of Parloff's most interesting points about fraud investigations is
the high price paid by the companies that are the first to be caught.
(Or, in the credit crisis, to go under.) After the failure of Fannie
Mae, Freddie Mac, Lehman Brothers, and AIG, the appetite for
investigation began to flag, Parloff notes, citing the lack of
attention given by prosecutors to the near collapse of Citigroup.
"Criminality is about deviance, so the more widespread and undesirable
conduct turns out to have been, the more difficult it become to treat
it as criminal," he writes.